08
Oct
Under the circumstances, I’m not surprised that the question of devaluation has resurfaced. Like Obama’s decision on Afghanistan, the Latvians’ decision on the currency is essentially a choice between two appalling options. If they don’t devalue, the country looks like it is locked into a downward spiral without any prospect of a boost to competitiveness - whilst hurling scarce cash into supporting a currency peg that may ultimately prove unsustainable. But if they do devalue, they risk bankrupting many Latvians who have taken out foreign-currency loans and provoking a fresh crisis of confidence. And, as ever, there are question marks over the motivations of the foreigners whose loans they are now relying on. Is the European Commission’s opposition to devaluation driven by its concerns for Swedish banks - who are heavily exposed to the Baltic states? After all, Sweden holds the EU presidency at the moment.
